AT&T continues to make progress in luring more subscribers onto its IP-based copper and fiber-based broadband service lines as its traditional DSL base continues to shrink, a trend that continued into the fourth quarter.

The service provider added nearly 600,000 IP broadband customers throughout its copper and FTTH footprint in 2017.

However, AT&T did lose another 76,000 copper-based DSL subscribers.

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John Stephens, CFO of AT&T, told investors during its fourth-quarter earnings call that IP-based broadband adoption overall is outpacing its dwindling DSL.

John Stephens

“You're also seeing us turn the corner with our broadband business,” Stephens said during the earnings call, according to a Seeking Alpha transcript. “IP broadband gains continue to be robust even as the conversion of DSL customers to IP slows the consumer DSL customer base dropped below 1 million.”

Higher speed adoption rising

As more customers migrate from DSL to IP-based broadband or to FTTH-based services in the markets where it is currently available, AT&T said more subscribers are opting for higher speeds. Customers continue to move up broadband speed tiers. AT&T said that 65% of all IP broadband customers have purchased speed tiers between 18 Mbps and 1 Gbps. Customers with speeds of 100 Mbps or faster have more than tripled year over year.

Another key contributor to broadband growth was AT&T’s growing FTTH network. AT&T could reach 14 million customers by the year 2019, surpassing its commitment to the FCC to build out FTTP to 12.5 million locations. The 12.5 million location goal was part of the agreement it made with the FCC to get its DirecTV acquisition approved.

As of the end of January, AT&T claimed it delivers FTTH services to 7 million locations across 67 metros with plans to reach at least 12.5 million locations by mid-2019.

Stephens said the service provider is seeing broadband adoption growing where it currently offers its FTTH-based AT&T Fiber service. AT&T’s broadband penetration in the fiber footprint is nearly twice that in the nonfiber footprint.

“Broadband penetration rate in our fiber footprint, where we have marketed our fiber service more than 24 months, are nearing 50%,” Stephens said during the earnings call, according to Seeking Alpha. “Last year alone, we doubled the number of IP broadband subscribers in our fiber footprint.”

Focus on the bundle

A key focus for AT&T’s broadband expansion strategy is driving more customers to purchase multiservice offerings that bundle broadband with wireless and its DirecTV products. Through its multiservice bundling efforts, the service provider is reducing customer churn. Like other fellow providers such as CenturyLink, AT&T noted that customers that purchase two or more products are less likely to cancel service.

“When you think about what drives low churn, there are two big drivers,” Stephens said. “Customer satisfaction is the number one driver of lower churn. But the second is multiproduct bundles with our customers: the more relationships they have with this on different products, the more powerful the driver of churn is.”

This thesis about bundling is clearly evident in AT&T’s video business. The service provider added another 170,000 homes with U-verse video this quarter that have bundled their service with wireless service, while another 700,000 wireless customers were bundled with its satellite TV product.

However, AT&T still lost 207,000 traditional video subscribers in the fourth quarter due to what it said was heightened competition in traditional pay TV markets and over-the-top services. Likewise, AT&T lost 147,000 satellite and 60,000 IPTV subscribers.

Stephens added that the service provider is seeing good bundling momentum where it offers its FTTH service.

“When you see us bundling with fiber, what we are seeing is a churn ratio rate that's about half the standalone satellite or video product churn,” Stephens said. “So, as we expand the fiber to 14 million over the next two years, you'll see us have tremendous opportunities to bundle with video.”

Entertainment Group: AT&T’s broadband revenues were down in the quarter due to legacy DSL declines, simplified pricing and bundle discounts.

During the quarter, AT&T added 95,000 new IP broadband net subscribers and a total of 19,000 total broadband net subscribers. The telco also passed more than 7 million customer locations with fiber. However, it lost a total of 76,000 DSL subscribers.

On the video side, AT&T added 161,000 new total video subscribers. But the real story was DIRECTV NOW. The service provider added 368,000 DIRECTV NOW subscribers to reach nearly 1.2 million subscribers.

Business services: Business wireless revenues were $11 billion, up 6.0% year over year due to higher equipment revenues. In business wireline, declines in legacy products were partially offset by continued growth in strategic business services. Total business wireline revenues were $7.4 billion, down 3.5% year over year but up sequentially.

Strategic business services revenues grew by nearly 6%, or $176 million year over year. These services represent 42% of total business wireline revenues and more than 70% of wireline data revenues and are an annualized revenue stream of more than $12 billion. This growth helped offset a decline of more than $400 million in legacy services in the quarter.

Financials: AT&T's consolidated revenues for the fourth quarter totaled $41.7 billion, down from $41.8 billion in the year-ago quarter. The company attributes the lower revenues to declines in legacy wireline services, wireless service revenues and domestic video, which were mostly offset by growth in wireless equipment and international.